Buying a home can be an overwhelming experience. The paperwork, deadlines, and research can all be a little stressful. Couple it with selling a home at the same time, and it has the possibility of turning into a giant headache. Here are a few things to keep in mind when you're buying and selling a home simultaneously.
The first step is to be realistic... you can buy and sell a home around the same time, but the likely hood that everything is going to fall into perfect place, and you will be able to schedule closing on a new home the exact same day you sell your old home, is pretty low. You're at the mercy of the market and potential buyers. You might find a great home you're ready to buy, but no one has put an offer on your current home. Or someone might be ready to scoop up your current home, but you haven't found a new place yet.
In a perfect world we want to be able to coordinate these closings back to back, but you should make yourself familiar with all your options, to avoid extra stress or surprises.
The Pros and Cons of Selling First
When you sell your home before buying a new one, you will have a firm understanding of how much money you have to work with.
It's also easier to get a new mortgage when you've sold your old home. You won't have two mortgage payments holding you back. Logistically, selling first is usually the best way to go. But it does come with a few disadvantages, too.
For one, you could sell without having anything lined up. You may have to rent or stay with family or friends while you look for a new home, and keep some belongings in storage. But there are ways around this, which will be explained later.
The Pros and Cons of Buying First
If you buy a home before your sell your old one, you have plenty of time to move. This give you more time to get your home ready to sell and ease into the process.
Of course, if your home doesn't sell for a while, you could possibly be paying two mortgages at once. If your home is already paid off, that's not a big deal, but most of us would struggle with two mortgage payments. Plus, it's harder to qualify for a new mortgage if you have two mortgage payments, because you have a much higher debt to income ratio. Home Guides explains how this works:
"To buy a house before you sell, your income will have to support both mortgage payments at the same time. If you're struggling just to have enough income to qualify for the new loan without figuring in your old mortgage, you probably won't be able to qualify with both."
Research the Real Estate Market
While selling first might seem like the best bet, it also depends on the market. Research prices in the areas where you're both buying and selling. You should find out whether the market favors sellers or buyers. That way, you can optimize your stronger role while protecting yourself in the weaker role, as they put it.
As a general rule, you want to sell first in a buyer's market. In a seller's market, you might consider buying first, provided that your property can indeed sell quickly. Here is an explanation from John Smith, CEO of Inspired Finance Group Pty Ltd:
"In a buyer's market, I would always suggest you sell first. The last thing you want is to be paying interest costs on two loans, or seeing equity in your properties eaten up, because you can't sell your own home...." In a seller's market Smith suggests buying first might be the best option, as you would assume that your property would be sold quite quickly. Again, he warns that it is important not to mix business with any personal feelings about your own property and remain objective – to ensure it is the type of property that would be sought by buyers.
Beyond researching the market, there are a few other ways to prepare.
Coordinate Closing Dates
Ideally, you want the closing date on your old home to come after your new home. You can make the selling and buying dates line up a little better by preparing for one while actively doing the other.
For example, if you're actively selling your current home first, prepare to buy a new home in the meantime. Research your options, keep your credit score high, and research loans.
If you're actively buying first, you can prepare your home for sale in the meantime. Address maintenance issues, declutter and clean, research realtors and home stagers, and so on.
Add a Contract Contingency
You can also line dates up by asking to add a contingency to your contract, whether you're buying or selling. If buying, you can ask the seller to make your purchase contingent upon the sale of your current home. You should be ready to give them reasons why your home will probably sell quickly, also, understand that most sellers will continue to market their home to other buyers, and accept other offers, so you must move fast and be ready to be flexible in negotiating the sale price of your current home.
If selling, you might negotiate with your house's buyer instead. Ask to add a contingency to the contract that makes the closing date line up with the finding and closing date on a new home.
Although many buyers will hesitate agreeing to an open-ended period, some will be so eager to buy your house that they'll agree to delay the closing until you close on a new house or until a certain number of days pass, whichever comes first. This option can be more or less likely, depending on local market conditions
Another option is a rent-back, or lease-back agreement. With a rent-back, the buyer agrees to "rent" out your current home for a short time after you sell it. You negotiate to pay the new owner rent. In exchange, you get to stay in your home while you find a new one, or during the gap period between closing on your old home and new home. Don't expect this to be a long term solution, keep in mind that not all lenders allow it, and don't expect to rent-back for longer than 30 - 60 days maximum. But it's more convenient than selling your home, moving into a rental property, and then moving again into your new home.
Consider Bridge Financing
Bridge loans are available specifically for those who are buying and selling a home simultaneously. You get a short-term loan to cover the down payment on your new home before selling your old one
Bridge loans are temporary loans that bridge the gap between the sales price of a new home and a home buyer's new mortgage, in the event the buyer's home has not yet sold. The bridge loan is secured to the buyer's existing home. The funds from the bridge loan are then used as a down payment on the move-up home.
Basically, it's a short-term loan that uses your old home's equity to help pay for your new home. You use the money to put a down payment on your new house, and then repay the loan when you sell your first home. With a bridge loan you can put your home on the market without any restrictions. A home equity loan, or HELOC, is also a possibility. Some also opt to get a short-term loan from a family member to cover the down payment and closing costs.
There are many different paths you can take when selling your current home and buying another.... My BEST advice is to discuss all these options (and possibly others) with a Real Estate Professional. I am always willing to consult with families, and discuss their personal situation, so they can decide of any of these are good choices for them.
With a little preparation, it's possible to minimize the stress of buying and selling a home at the same time. Know the market, know your options, and come up with a plan for making it as seamless as possible.
To schedule a consultation to discuss your situation.... contact me by email or phone (call or text) below.